Glossary of Mortgage Terms A - G
- acceleration clause
A clause in your mortgage which allows the lender to demand payment of the outstanding
loan balance for various reasons. The most common reasons for accelerating a loan are if
the borrower defaults on the loan or transfers title to another individual without
informing the lender.
adjustable-rate mortgage (ARM)
A mortgage in which the interest changes periodically, according to corresponding
fluctuations in an index. All ARMs are tied to indexes.
The loan payment consists of a portion which will be applied to pay the accruing interest
on a loan, with the remainder being applied to the principal. Over time, the interest
portion decreases as the loan balance decreases, and the amount applied to principal
increases so that the loan is paid off (amortized) in the specified time.
A table which shows how much of each payment will be applied toward principal and how much
toward interest over the life of the loan. It also shows the gradual decrease of the loan
balance until it reaches zero.
percentage rate (APR)
This is not the note rate on your loan. It is a value created according to a government
formula intended to reflect the true annual cost of borrowing, expressed as a percentage.
It works sort of like this, but not exactly, so only use this as a guideline: deduct the
closing costs from your loan amount, then using your actual loan payment, calculate what
the interest rate would be on this amount instead of your actual loan amount. You will
come up with a number close to the APR. Because you are using the same payment on a
smaller amount, the APR is always higher than the actual not rate on your loan.
A written justification of the price paid for a property, primarily based on an analysis
of comparable sales of similar homes nearby.
An opinion of a property's fair market value, based on an appraiser's knowledge,
experience, and analysis of the property. Since an appraisal is based primarily on
comparable sales, and the most recent sale is the one on the property in question, the
appraisal usually comes out at the purchase price.
An individual qualified by education, training, and experience to estimate the value of
real property and personal property. Although some appraisers work directly for mortgage
lenders, most are independent.
The increase in the value of a property due to changes in market conditions, inflation, or
The valuation placed on property by a public tax assessor for purposes of taxation.
The placing of a value on property for the purpose of taxation.
A public official who establishes the value of a property for taxation purposes.
When ownership of your mortgage is transferred from one company or individual to another,
it is called an assignment.
A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower
must "qualify" in order to assume the loan.
The term applied when a buyer assumes the sellers mortgage.
A mortgage loan that requires the remaining principal balance be paid at a specific point
in time. For example, a loan may be amortized as if it would be paid over a thirty year
period, but requires that at the end of the tenth year the entire remaining balance must
The final lump sum payment that is due at the termination of a balloon mortgage.
By filing in federal bankruptcy court, an individual or individuals can restructure or
relieve themselves of debts and liabilities. Bankruptcies are of various types, but the
most common for an individual seem to be a "Chapter 7 No Asset" bankruptcy which
relieves the borrower of most types of debts. A borrower cannot usually qualify for an
"A" paper loan for a period of two years after the bankruptcy has been
discharged and requires the re-establishment of an ability to repay debt.
Broker has several meanings in different situations. Most Realtors are "agents"
who work under a "broker." Some agents are brokers as well, either working form
themselves or under another broker. In the mortgage industry, broker usually refers to a
company or individual that does not lend the money for the loans themselves, but broker
loans to larger lenders or investors. (See the Home Loan Library that discusses the
different types of lenders). As a normal definition, a broker is anyone who acts as an
agent, bringing two parties together for any type of transaction and earns a fee for doing
Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are
usually limited to a certain amount. Those limitations may apply to how much the loan may
adjust over a six month period, an annual period, and over the life of the loan, and are
referred to as "caps." Some ARMs, although they may have a life cap, allow the
interest rate to fluctuate freely, but require a certain minimum payment which can change
once a year. There is a limit on how much that payment can change each year, and that
limit is also referred to as a cap.
When a borrower refinances his mortgage at a higher amount than the current loan balance
with the intention of pulling out money for personal use, it is referred to as a
"cash out refinance."
certificate of deposit index
One of the indexes used for determining interest rate changes on some adjustable rate
mortgages. It is an average of what banks are paying on certificates of deposit.
A title that is free of liens or legal questions as to ownership of the property.
This has different meanings in different states. In some states a real estate transaction
is not consider "closed" until the documents record at the local recorders
office. In others, the "closing" is a meeting where all of the documents are
signed and money changes hands.
Closing costs are separated into what are called "non-recurring closing costs"
and "pre-paid items." Non-recurring closing costs are any items which are paid
just once as a result of buying the property or obtaining a loan. "Pre-paids"
are items which recur over time, such as property taxes and homeowners insurance. A lender
makes an attempt to estimate the amount of non-recurring closing costs and prepaid items
on the Good Faith Estimate which they must issue to the borrower within three days of
receiving a home loan application.
See Settlement Statement.
cloud on title
Any conditions revealed by a title search that adversely affect the title to real estate.
Usually clouds on title cannot be removed except by deed, release, or court action.
An additional individual who is both obligated on the loan and is on title to the property.
In a home loan, the property is the collateral. The borrower risks losing the property if
the loan is not repaid according to the terms of the mortgage or deed of trust.
When a borrower falls behind, the lender contacts them in an effort to bring the loan
current. The loan goes to "collection." As part of the collection effort, the
lender must mail and record certain documents in case they are eventually required to
foreclose on the property.
In California, property acquired by a married couple during their marriage is considered to be owned jointly, except under special circumstances.
Recent sales of similar properties in nearby areas and used to help determine the market
value of a property. Also referred to as "comps."
A type of ownership in real property where all of the owners own the property, common
areas and buildings together, with the exception of the interior of the unit to which they
have title. Often mistakenly referred to as a type of construction or development, it
actually refers to the type of ownership.
A short-term, interim loan for financing the cost of construction. The lender makes
payments to the builder at periodic intervals as the work progresses.
A condition that must be met before a contract is legally binding. For example, home
purchasers often include a contingency that specifies that the contract is not binding
until the purchaser obtains a satisfactory home inspection report from a qualified home
An oral or written agreement to do or not to do a certain thing.
Refers to home loans other than government loans (VA and FHA).
IAn adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate
mortgage within a specific time.
cost of funds
One of the indexes that is used to determine interest rate changes for certain
adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings,
and advances of the financial institutions such as banks and savings & loans, in the
11th District of the Federal Home Loan Bank.
An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.
A record of an individual's repayment of debt. Credit histories are reviewed my mortgage
lenders as one of the underwriting criteria in determining credit risk.
A person or corporation to whom money is owed.
A report of an individual's credit history prepared by a credit bureau and used by a
lender in determining a loan applicant's creditworthiness.
An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit. Experian, TransUnion and
The legal document conveying title to a property.
Short for "deed in lieu of foreclosure," this conveys title to the lender when
the borrower is in default and wants to avoid foreclosure. The lender may or may not cease
foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether
the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most
likely show on a credit history. What a deed-in-lieu may prevent is having the documents
preparatory to a foreclosure being recorded and become a matter of public record.
deed of trust
Some states, like California, do not record mortgages. Instead, they record a deed of
trust which is essentially the same thing.
Failure to make the mortgage payment within a specified period of time. For first
mortgages or first trust deeds, if a payment has still not been made within 30 days of the
due date, the loan is considered to be in default.
Failure to make mortgage payments when mortgage payments are due. For most mortgages,
payments are due on the first day of the month. Even though they may not charge a
"late fee" for a number of days, the payment is still considered to be late and
the loan delinquent. When a loan payment is more than 30 days late, most lenders report
the late payment to one or more credit bureaus.
A provision in a mortgage that allows the lender to demand repayment in full if the
borrower sells the property that serves as security for the mortgage.
Anything that affects or limits the fee simple title to a property, such as mortgages,
leases, easements, or restrictions.
A homeowner's financial interest in a property. Equity is the difference between the fair
market value of the property and the amount still owed on its mortgage and other liens.
An item of value, money, or documents deposited with a third party to be delivered upon
the fulfillment of a condition. For example, the earnest money deposit is put into escrow
until delivered to the seller when the transaction is closed.
Once you close your purchase transaction, you may have an escrow account or impound
account with your lender. This means the amount you pay each month includes an amount
above what would be required if you were only paying your principal and interest. The
extra money is held in your impound account (escrow account) for the payment of items like
property taxes and homeowners insurance when they come due. The lender pays them
with your money instead of you paying them yourself.
Once each year your lender will perform an "escrow analysis" to make sure they
are collecting the correct amount of money for the anticipated expenditures.
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance,
and other property expenses as they become due.
The lawful expulsion of an occupant from real property.
examination of title
The report on the title of a property from the public records or an abstract of the title.
Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by
consumer/credit reporting agencies and establishes procedures for correcting mistakes on
one's credit record.
fair market value
The highest price that a buyer, willing but not compelled to buy, would pay, and the
lowest a seller, willing but not compelled to sell, would accept.
Fannie Mae (FNMA)
The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.
Fannie Mae's Community Home Buyer's
An income-based community lending model, under which mortgage insurers and Fannie Mae
offer flexible underwriting guidelines to increase a low- or moderate-income family's
buying power and to decrease the total amount of cash needed to purchase a home. Borrowers
who participate in this model are required to attend pre-purchase home-buyer education
Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity
is the insuring of residential mortgage loans made by private lenders. The FHA sets
standards for construction and underwriting but does not lend money or plan or construct
A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA
loans, an FHA loan will often be referred to as a government loan.
The mortgage that is in first place among any loans recorded against a property. Usually
refers to the date in which loans are recorded, but there are exceptions.
A mortgage in which the interest rate does not change during the entire term of the loan.
Insurance that compensates for physical property damage resulting from flooding. It is
required for properties located in federally designated flood areas.
The legal process by which a borrower in default under a mortgage is deprived of his or
her interest in the mortgaged property. This usually involves a forced sale of the
property at public auction with the proceeds of the sale being applied to the mortgage
A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by
the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that
are not government loans are classified as conventional loans.
Government National Mortgage
Association (Ginnie Mae)
A government-owned corporation within the U.S. Department of Housing and Urban Development
(HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae
and Freddie Mac in providing funds to lenders for making home loans. The difference is
that Ginnie Mae provides funds for government loans (FHA and VA)
The person to whom an interest in real property is conveyed.
The person conveying an interest in real property.